PCs Slammed Again: Evercore Cuts Estimates, Pac Crest Cuts MU to Hold

By Tiernan Ray

Today has been another day for the Street to case a worrisome eye upon the personal computer market.

Evercore Partners PC analyst Rob Cihra cut his estimate for PC unit shipments this year to a decline of 4% from 2011′s level, versus what he had projected previously to be a flat year-to-year comparison. For 2013, he now sees no growth versus a prior 4% year-over-year rise.

“This would make 2012 only the second time in past 20 years where PC units fell Y/Y (the other being 2001 -3%Y/Y),” writes Cihra. And he thinks it’s not just a punk economy, but also tablets eating into PC sales, writing “A weak macro certainly hurts, but PC weakness clearly goes beyond today’s macro, considering PCs still managed to grow +11%Y/Y in 2008 and +7%Y/Y in 2009 under much steeper economic pressure.”

Both consumer and enterprise computing is weak as Intel (INTC) and Microsoft (MSFT) and partners such as Dell (DELL) and Hewlett-Packard (HPQ) move toward the introduction of Microsoft’s Windows 8 on October 26th:

Fundamental demand weakness appears to have been exacerbated by OEMs needing to burn down overhanging end-systems inventory ahead of Win8 (Oct 26), but we see weakness as more structural, since Win8 should only impact consumer and yet enterprise PC trends have looked nearly as weak QTD […] Increasingly, tablets drive not only PC but also cross-platform cannibalization, forcing a complete re-think of what a PC vs. tablet vs. smartphone even is. Guts of hardware/semi content and increasingly OS software overlap, sustaining AAPL momentum but now making it a critical challenge for DELL and HPQ to figure out some tablet strategy after years of relying on standardized Wintel PCs, particularly as MSFT launches its own-brand Surface.

Cihra is modeling 350.9 million PCs will sold this year, versus 364 million last year, and 116.8 million tablet computers will be sold versus 69.2 million last year.

Cihra even provides a handy chart to show what he thinks is the cannibalization effect:

Cihra cut his estimate for Dell for this fiscal year to $57 billion and $1.70 per share in profit from a prior $57.5 billion and $1.75, writing that the company is weaker than the weak PC market because it is “walking away from competitive pricing.” He maintains an Equal Weight rating on Dell shares.

Cihra cut his estimate for Hewlett-Packard for fiscal 2013 to $117 billion and $4.04 a share in profit from a prior $119 billion and $4.06 a share. He maintains an Underweight rating on the stock.

Huberty writes that Williams remarked that sales are turning out softer than expected this year and that Windows-based PCs are in some senses dependent on Intel’s next microprocessor, code-named “Haswell”:

The impact of Windows 8 is likely to be 6-9 months after the October 2012 launch as enterprises take time to test new products and Intel’s Haswell platform, which will offer better performance, launches next spring.

And Pacific Crest’s Monika Garg cut her rating on shares of Micron Technology (MU) to Sector Perform from Outperform, “as we are getting more cautious on DRAM outlook due to weak PC demand and declining DRAM pricing.”

Weak PC sales are going to put pressure on prices for the chips, writes Garg:

We believe DRAM supply has been coming offline, but due to weak PC demand, DRAM pricing has been declining. In the near term, DRAM demand signals appear weak, and this could add pressure on DRAM pricing. DRAM producers are shifting their output to server DRAM and mo- bile DRAM, but PCs still consume close to 50% of total DRAM bits. And weak PC demand is leading to the downtrend in DRAM pricing.

Garg cut her fiscal 2013 estimate to $9.06 billion in revenue and 6 cents a share in profit, on a GAAP basis, from a prior $9.15 billion and 14 cents. That is above the consensus of $9.52 billion and 19 cents.

The PC stocks are broadly lower than the weak Nasdaq Composite today, which is down 0.8%. Dell is off 21 cents, or 2%, at $10.16, HP shares are down 41 cents, or 2.3%, at $17.18, Microsoft is off 44 cents, or 1.4%, at $30.75, Intel stock is down 41 cents, or 1.8%, at $22.72, and Micron shares are down 30 cents, or 3.3%, at $6.16.

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There are 5 comments

SEPTEMBER 24, 2012 1:50 P.M.

bud u. wrote:

Is it accurate to differentiate tablets from PC's? Or even mobile devices from both? To me, it is just the pie chart changing, but the revenue numbers are still growing. Perhaps WinTel dominated for years, but they are just a slice of the pie now. These "computing devices" are merely taking on different forms, and will probably change in the future. Time for a new look?

SEPTEMBER 24, 2012 2:50 P.M.

jay wrote:

they are all into services right now.

SEPTEMBER 24, 2012 3:04 P.M.

anon1 wrote:

So... PCs are dead?

Wall Street seems fixated on the fact that no one will ever use a PC again. Sounds ridiculous.

SEPTEMBER 24, 2012 5:49 P.M.

techy46 wrote:

The falling off of the Windows 7 refresh cycle in anticipation of Windows 8 is having a huge effect. The is a classic churning opportunity for the hedge fund analysts. PC sales. which include tablets, will rise next year due to Windows 8 and then they'll all adjust their estimates upwards. It doesn;t cost them anything to change their estimates more often.

SEPTEMBER 24, 2012 5:51 P.M.

techy46 wrote:

So… PCs are dead? No way, PC's are Mobile but Apple analysts and fans want them dead so they can hyoe Apple's stock yet again.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.